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with the responsibility of making an appropriate strategic choice – the implication is that the performance of sets of resources and assets hinges predominantly on the trajectory in which they are applied (McGahan, 2004)

Figure 2.2: Different trajectories of industry change

A firm’s specificity also plays an important role since performance measures are dependent on the latent performance construct (Steers, 1975) and internal measurement systems such as residual income measures also influence performance at both individual and Organisational levels and thereby alter

Industry

change

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managerial decision-making capabilities. According to Davis & Pett (2002) and Richard et al. (2009, p.725) – a survey of executives of 321 business units with operations in the US paper and pulp industry, found that performance comparisons within strategic groups enhanced the validity of the comparison.

The third source of dimensionality is the measurement time frame and persistence of performance. Richard et al. (2009, p.726) reiterated that both Jacobsen (1988) and Warring (1996) determined that performance does not persist indefinitely through a number of empirical studies. The failure to account for natural variability and stickiness in performance by the adoption of short or medium term measure may result in a heavy bias resulting from random fluctuations. It follows that care must be taken by both researchers and managers in interpreting performance differences. This explains the potential for bias. Richard et al. (2009, p.726) also made reference to Powell (2003) who stated that empirically observed performance outcomes can be partially explained by random events and the nature of models used to measure performance over time.

Given the differing features of the industrial, corporate and business unit factors, it is self-evident that changes in performance will occur at different rates for each of the factors and that performance must be measure in a manner relative to the context. McGahan (1999), and Porter (2003) determined that researchers should select a measurement timeframe that correlates with the phenomena under examination (Richard et al. 2009, p.726). McGuire et al (1990) and Roberts & Dowling (2002) reiterate the supposition that may performance measures are in themselves time dependent and that reputation effects create a link between past and future performance and in doing so, create an opportunity for evaluation within the dimensionality of performance itself. An adverse effect of this type of auto correlation is that it may have arisen as a result of unwanted biases. Jacobsen (1987), as discussed in Richard et al. (2000, p.726), suggests that even objective measures like accounting rates of return can be biased because of the possibility of inclusion of imperfect information and structural or psychological biases which are based on consensus forecasts that update as the information becomes readily available. The ramifications of measuring performance incorrectly mean that the researcher in

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question requires an innate understanding of the time sequence that imputes organisational activity to performance.

Based on the preceding information it follows that there are many perspectives on Organisational Effectiveness. Some scholars have argued that the goal approach, the systems theory approach and the multiple constituencies approach being considered the most prominent. (Denison, 1990; Eccles, 1991; Gibson, Ivancevich & Donnelly, 1994, p. 31-40). Selection of the appropriate basis for assessing Organisational Effectiveness presents a challenging problem for managers and researchers. There are no generally accepted conceptualizations prescribing the best criteria. Different organisational situations - pertaining to the performance of the organization's structure, the performance of the organization's human resources, and the impact of the organization's activities -require different criteria.

2.6.3 Measurement of organisational performance

2.6.3.1 Approaches to the evaluation and measurement of Organisational Performance

Cunningham (1977) concluded that there are several ways of evaluating Organizational Performance namely, the rational goal model, systems resource model, managerial process model, organisational development model, the bargaining model. These are summarised in the table below:

70 Table 2.2: Models for evaluating OP

Model Details

The Rational Goal Model focuses on the organization's ability to achieve its goals as identified by establishing the general goal, discovering means or objectives for its accomplishment, and defining a set of activities for each objectives. The organization is evaluated by comparing the activities accomplished with those planned for. These criteria are determined by various factors. The Systems Resource Model The systems resource model analyzes the decision-makers's capability to efficiently

distribute resources among various subsystem's needs. The systems resources model defines the organization as a network of interrelated subsystems. These subsystems needs may be classified as:

 bargaining position -ability of the organization to exploit its environment in acquisition of scarce and valued resources;

 ability of the systems' decision-makers to perceive, and correctly interpret, the real properties of the external environment;

 ability of the system to produce a certain specified output;  maintenance of internal day-to-day activities;

 ability of the organization to co-ordinate relationships among the various subsystems;

 ability of the organization to respond to feedback regarding its effectiveness in the environment.

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 ability of the organization to evaluate the effect of its decisions;  ability of the organization' system to accomplish its goals.

The Bargaining Model According to this model, an organisation is a cooperative, competitive , resource distributing system where decision makers bargain with other groups for scarce resources which are necessary for problem solving and the accomplishment of goals. This model measures the ability of decision-makers to obtain and use resources for responding to problems important to them. Needs are evaluated in terms of efficiency and stress.

The Managerial Process Model This model is concerned with the assessment of the capability and productivity of various management processes such as decision making, planning, etc.

The Organisation Development Model This model measures the ability of the organisation to work as a team and to fit the needs of its members and focus on development of supervisory behaviour manifesting interest and concern for workers, team spirit, group loyalty and teamwork, etc. This model is concerned with diagnosis (Where are we?), goal setting and planning (Where do we want to go?), implementation (How will we get there?) evaluation (How will we know when we do get there?). This model is a process of management by objectives. The Structural Functional Model The structural functional approach tests the durability and flexibility of the organisation’s

structure for responding to a diversity of situations and events. According to this model, all systems need maintenance and continuity and is defined in terms of security of the organisation in relation to social forces in its environment, stability of line of authority and

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communication, stability of informal relations within the organisation, continuity of policy making, homogeneity of outlook (effective orientation of members to norms and beliefs. The Functional Model According to this model an organisations effectiveness is determined by the social

consequences of its activities, with the crucial question to be answered is: How well do the organisation’s activities serve the needs of its client groups.

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Richard et al (2009, p.727) indicates three different approaches on measuring performance as a dependent variable as depicted in the table below:-

Table 2.3: Three Different approaches to Measures

Type of measure Reason for measure

Single Measure Belief in the direct relationship of the measure to the performance

Several Different Measures Adopted for reasons of comparative analysis by using different dependent variables and identical independent variables

Aggregation of Dependent Variables Assuming convergent validity based on correlation between measures

Objective measures of Organisational Performance like accounting measures may be distorted by accounting policies, human error and deception. Accounting standards are not always consistent with the logic of Organisational Performance (Richard et al, 2009, p.728) and accounting measures of performance place emphasis on historic activity over future performance. In a practical example, Richard et al. (2009, p.728) discussed how Jusoh & Parnell (2008) experienced difficulty in the application of Western accounting standards to an emerging Malaysian market. Their experience confirms the Vietnamese case study in measurement that found accounting measures to be a biased reflection of performance (Luu et al, 2008).

The financial market measures are value based objective measures that are the preferred instrument for defining Organisational Performance within strategic, economic and financial markets but whilst they may be an appropriate measure of overall Organisational Performance, they become less useful when research focuses on performance. If multidimensionality is then defined in terms of a product or a strategic business unit, it follows that because the unit is not disaggregated and a true measure of financial performance and risk – the performance measures obtained will be flawed as a result.

Mixed Market/Accounting Measures are another of the objective measures that result in a better balance of risk against operational performance issues. Tobin’s q is

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perhaps the earliest and most popular hybrid measure of performance. The ratio of market value of firm assets to their replacement cost and a theoretically-based measure of economic return (Tobin, 1969; Richard et al., 2009, p.732) can be rather problematic since the replacement value of a firm’s assets is measured by the book value of the assets (Varaiya et al, 1987; Richard et al., 2009, p.732) which is in turn, based on a historical rather than a current replacement cost. Book value also creates other distortions since intangible assets are not included in the replacement costs and ignored in the FASD accounting measures to boot.

The common dependent variable in management research is survival. Survival and performance are closely linked, but if the studies focus on short term phenomena - the factor of survival will not be able to provide variance enough to discriminate between high performing and low performing firms. Subjective measures ask well- informed respondents (key informants) about Organisational Performance. The subjective measures of Organisational Performance fall into two categories – fully

subjective and quasi-objective.

Quasi-objective measures tend to replicate objective measures. The augmentation of the theoretical and normative aspect of firm performance has led to an increased focus on the subjective dimensions of performance. This increased focus agrees with the trend of measuring performance against economic, environmental and social performance and against balanced scorecards that add internal processes as well as customer satisfaction and innovation measures to the measurement of financial performance. (Kaplan & Norton, 1996; Richard et al., 2009, p.732).

The Fortune and Reputation Institute Reputation provides surveys (Chakravartay, 1986; Fombrun & Shanely, 1990; Richard et al., 2009, p.732) which are empirically associated with past financial performance and to a lesser degree with future performance. Organisational Reputation is commonly defined as cognitive representation held by multiple publics of an organization (Yang and Grunig, 2005, p.308). One of the factors considered under the measurement of reputation is Corporate Social Performance. The Kinder, Lydenberg, Domini index (KLD) also assesses and focuses on indicators of Corporate Social Performance which are then aggregated to provide a reliable yardstick for the company’s regard for corporate social responsiveness (Richard et al., 2009, p.735). The use of subjective measures

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of Organisational Performance increases the margin for human error due to misinterpretation (Gilovic et al, 2002; Kahneman & Tversky, 2000; Richard et al., 2009, p.736). Measurement invariance techniques can be applied prior to testing of between-groups differences (Nye & Drasgow, 2011, p.966) however it is axiomatic that less bias arises from the use of objective focal constructs.

Fully subjective measures may directly address any underlying performance constructs but the negative side effect of this subjectivity is the skewing of the dimensionality of the measures by cognitive and psychological biases, like the ‘halo effect’ which materially impacts perceptions of performance (Rosenzweig, 2007; Richard et al., 2009, p.736). The dimensionality self-report measures of individuals who form part of the focal organization can also be impacted by other cognitive biases, where participants tend to see themselves in a positive light (Taylor & Brown, 1988; Richard et al., 2009, p.736) or tend to construe all external criteria as being in their favour (Stajkovic & Sommer, 2000; Richard et al., 2009, p.736)

Venkataram & Ramanujam (1986; 1987) distinguished quasi-objective measures from objective values collected from secondary sources (Richard et al., 2009, p.726). They usually elicit specific objective performance information via self-report techniques. Researchers must maintain a broad measure of performance that accounts for multidimensionality but is flexible enough to allow for variation between measures. The measurement of performance requires an innate understanding of the relationship between measures. But it must be noted that the use of multiple and varied measures does not contribute towards a homogeneity in measured performance unless the performance measures are designed appropriately. The use of methodological approaches addresses the multidimensionality of Organisational performance measurement as long as an appropriate measuring instrument is utilized. What matters in the end is how well Organisational performance was measured and how the process can be further improved.

2.6.3.2 The time dimensional model of effectiveness

According to systems theory, an organisation is an element of a larger system, the environment. (Ivancevich et al, 2011, p. 25). According to Ivancevich et. al (2011. p.25), the ultimate criterion of organisational effectiveness is whether the organisation survives in the environment. The authors also hold that survival requires

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adaptation, and adaptation often involves predictable sequences. (Ivancevich et al,

2011, p. 25). Systems theory is used to integrate organisational effectiveness and time. Two main conclusions of systems theory are (1) effectiveness criteria (e.g. productivity, quality, adaptiveness) must reflect the entire input-process-output cycle and (2) effectiveness criteria must reflect the interrelationships between the organisation and its outside environment.

According to Spangenberg & Theron (2004, p.20), the survival of the organisation is the long term criterion of effectiveness. A similar view is held by Ivancevich et al (2011). These authors note that the time dimensional model of effectiveness (relative to the systems model of effectiveness) defines effectiveness over the short, medium and long terms and includes non-financial measures. According to Ivancevich et al (2011, p 24), the conclusions of systems theory of effectiveness are twofold:

o Effectiveness criteria must reflect the entire input-process-output cycle and not simply output

o Effectiveness criteria must reflect the interrelationships between the organisation and its outside environment.

Ivancevich et al (2011, p. 25) also indicate that organisations go through phases and rise and fall which suggests that they have life cycles, and that the life cycle stage is reflected by the criteria of effectiveness. Measurement indicators include productivity, efficiency, accidents, turnover, absenteeism, quality, rate of return, morale and employee satisfaction with quality identified as the criterion that cuts across the time dimension and without the perception of which, the organisations survival is at risk. Van Tonder (1999, p 74) noted that studies of organisational life cycles are focussed on intra-organisational processes. Following extensive research, Van Tonder (1999, p. 81) presented an integrated model of the organisational life cycle comprising 6 stages, viz.:

 The entrepreneurial stage  Development/Collective stage  Maturation/formalisation stage  Elaboration of structure stage  Decline or death

77  Renewal

According to van Tonder (1999, p. 81-85) the most critical stages are the birth and decline stages. The former is critical in that the motivation, energy and abilities of the entrepreneur is conveyed at the outset and this diminishes with time. In the case of the latter the organisation has to seek out opportunities in terms of innovation, change and adjustment of strategies in order to ensure survival.

2.6.3.3 Performance Measurement

The tools of triangulation, adequate sample size and longitudinal analysis serves as an opportunity to improve construct validity (Campbell and Fiske, 1959; Venkataram & Ramanujam, 1987; Richard et al., 2009, p.739) and simultaneously reduce the risk of measurement error whilst validating data through cross verification from multiple sources. It is important to note that sample size is an important determinant of statistical power (Cohen, 1988). True triangulation requires aggregation as well as a theoretical understanding on how to triangulate components of performance – a concept that has yet to be addressed in research circles. The use of triangulation as an approach has its own drawbacks when constructs are multidimensional, possess non-recursive properties and have complex interactions between items.

Longitudinal data analysis usage together with sufficient statistical power may assist in a reduction of errors ( more especially Type II) because it focuses on change in performance over periods of time and reduces the influence of time invariant common method errors like format effects (Ailawadi et al., 2004; Richard et al., 2009, p.741). It also focuses on contextual, firm-specific fixed effects (Boulding, 1990) although, 10-15 year periods are necessary to validly identify high performance (Collins & Porras, 1995; Foster & Kaplan, 2001; Kirby, 2005; Richard et al., 2009, p741)

The use of Non-Parametric means to address the dimensionality of Organisational Performance means operating at a disaggregated level and disallowing the relationships between measures. Most approaches are parametric and intended to reduce dimensionality into an interpretable and reflective construct but this in turn, imposes artificial measurement structures and weakens triangulation because it creates several factors that lack adequate coverage

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Parametric approaches are based on central tendencies – for most studies, good performance is based on mathematical averaging of a set of underlying measures. Resource based and dynamic capabilities based theories of strategic advantage are constructed on the concept of dominance. The concept of dominance has given rise to the creation of a frontline of performance that fits into with non-parametric linear programming approaches like Data Envelopment Analysis (DEA) (Charnes et al, 1978; Richard et al., 2009, p.743). This model retains natural heterogeneity that prevents possible generalisations, whilst allowing for multidimensionality and resisting the ad hoc aggregation of different measures and in doing so – manages to represent the multidimensional nature of performance in a superior fashion to the traditional parametric alternatives.

2.6.4 Concluding perspectives

Although much has been said in the literature relating organisational effectiveness to a model, optimising organisational performance remains elusive as a result of its dependency on criteria to be measured, financial or non-financial. Of concern is the fact that Organisational Performance remains influenced by volatile internal factors and external factors and is largely dependent on the tandem of these systems which will provide a basis for predicting organisational effectiveness.

2.7 Chapter summary

Chapter Two reviewed the extant knowledge on the origins and current status of the organisation identity construct. After offering a brief historical overview and consideration of the construct’s development since approximately 1985, the chapter considered the current status of theory development and empiricism in respect of organisation identity. The relationship between organisation identity and organisational performance is identified as an important and much-needed research focus. Of the available theory on organisation identity, Organisation Identity Theory (OIT) offers a coherent systemic guiding frame from within which to investigate this relationship. Organisational Performance poses important questions for research objectives across the various disciplines. Establishing the valid and objective measurement of an overarching performance construct will enable stakeholders in various fields to see the bigger picture and appreciate the complexity of Organisational Performance, whilst examining the connections across various

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disciplines. To this end – two key issues were identified and discussed – the dimensionality and nature of performance and the various methods, as well as the nature of performance measurement to facilitate a better understanding of the process and application thereof. The scope, nature and methodology for conducting such an empirical study are considered in Chapter Three.

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